Experimenting in the cloud: The digital divide's impact on innovation

This paper builds on a recent National Science Foundation working paper that identified a strong association between cloud use and various types of innovation but did not consider whether 1) cloud adoption is a reliable indicator of the innovation orientation of a firm, or 2) cloud adoption enables various types of innovation. We estimate propensity score matching and endogenous treatment effect models to control for innovation orientation, producing evidence to test the second explanation. Findings support an enabling effect of the cloud on innovation providing concrete evidence of the adverse impact of the digital divide. •New data allows examining effects of the digital divide on cloud computing.•Earlier analysis identified a strong association between the cloud and innovation.•It is not clear if cloud adoption enables innovation or is merely an indicator of it.•Controlling for endogeneity allows testing these alternative explanations.•Evidence of an enabling effect suggests the digital divide may inhibit rural innovation.